Family income benefit explained

Family income benefit is a type of life insurance that pays your family a regular income rather than a one-off lump sum. Instead of a single cheque after a death, the policy pays a set amount every month until the end of the policy term, which is a date chosen when the cover starts. It is a form of decreasing term life insurance, because the total the policy could pay falls as the years pass¹.

The reason for that design is simple: the policy replaces an income, and an income is needed for a set number of years, not forever. A parent might take a 20-year policy to cover the years until their children are financially independent. If they die early in that term, the family receives the monthly payments for most of the 20 years; if they die late in the term, the payments run only for the few years that remain¹.

Family income benefit is generally seen as the most affordable form of life insurance available, because the insurer's maximum liability shrinks as the term runs down¹. It can be bought on an individual basis, or jointly, with a joint policy paying one set of income payments, usually after the first policyholder dies during the term¹.

What family income benefit is: an income, not a lump sum

Most life insurance works by paying a single sum on death. Family income benefit works differently: it is a special type of life insurance structured as a decreasing policy, paying a regular income for a set period rather than one payment¹. It sits within the broader family of term life insurance, which covers you for a fixed number of years and pays out only if death happens within them². Family income cover is described as a type of term life insurance which pays out a monthly salary upon one recipient dying³.

The decreasing label can be misleading. The monthly payment itself does not fall; what falls is the total the insurer could ever pay, because each year that passes without a claim removes twelve months of payments from the potential liability. This makes it a type of decreasing term policy², in the same family as mortgage life insurance, where the payout is designed to shrink alongside a debt⁴.

Because it pays an income, family income benefit is sometimes confused with income protection, but the two cover different events. Income protection is not a type of life insurance: it replaces part of your income if you cannot work because of illness or injury, typically paying a regular income rather than a lump sum, usually covering around 50% to 70% of your salary⁵. Family income benefit pays because someone has died, and it pays to the family, not to the policyholder. The two products answer different questions, and many households hold both. More detail is in how life insurance works and how income protection insurance works.

How the payout works: a regular income until the policy ends

The mechanics are straightforward. You choose an annual or monthly amount of cover and a term, which is the number of years the policy runs. If you die during the term, the insurer pays the chosen amount as a regular income, monthly, from the date of the claim until the policy's end date. If you die after the term ends, there is no payout¹.

The payment is a monthly income only. It is not a lump sum, and it is not a choice the family can make at the point of claim: the policy pays monthly until the end of the term¹. That regularity is the product's main appeal for families who worry about a large inheritance being spent quickly, or who simply want the money to arrive the way the missing income would have arrived.

Family income benefit is available on both an individual and joint basis. A joint policy pays one set of income payments, usually after the first policyholder dies during the term, so a couple covering the same risk does not need two policies, though two single policies can pay out twice where both die within the terms. The trade-offs are covered in joint life insurance explained.

Why the total payout shrinks the later a claim is made

The defining feature of family income benefit is that the total paid depends entirely on when the claim happens. As with decreasing term insurance generally, the payout your family would receive gets smaller over the term of the policy⁶. With a lump-sum policy, a death in year one and a death in year nineteen of a 20-year term pay exactly the same amount; with family income benefit, a death in year one triggers payments for 19 remaining years, while a death in year nineteen triggers payments for one.

This is the same principle behind other decreasing cover. With a decreasing policy used for mortgage protection, the final payout gets less over time so it matches the amount left on the mortgage⁴, and decreasing term cover generally is designed so the amount paid out falls over the life of the policy, usually to match a shrinking debt such as a repayment mortgage⁷. Family income benefit applies the same logic to a family's need for income rather than to a debt: the years a family needs replacement income for are finite, so the cover is built to expire when the need does.

The practical consequence is that the policy is at its most valuable early, when the family would face the longest period without the deceased's income. It is at its least valuable in the final years, when only a few payments remain. Anyone comparing family income benefit with level term cover should hold this in mind: the monthly figure looks smaller than a lump sum, but the comparison depends entirely on when the claim would fall. The differences are set out in level term or decreasing term life insurance.

A worked example: a claim late in the term

Which? gives an example of a policy paying £2,000 a month: if the policyholder died in year 25, the family would receive £2,000 a month for the final five years¹. Five years of payments at £2,000 a month is 60 monthly payments, or £120,000 in total (£2,000 a month for five years).

Now compare that with a claim at the start of the same policy. Had the death occurred in the first year, the same £2,000 a month would have run for the full term, and the total would have been many times larger. Nothing about the cover changed: the monthly amount, the premiums and the end date were identical in both cases. The only variable was when the death fell.

This is why the term is the most important decision after the amount of cover. A term that ends too early leaves a family without income while children are still dependent; a term that runs long past the need costs more in premiums than the risk requires. The general guidance on sizing cover is in how much life insurance cover do I need, and the choice between covering a mortgage and covering a family income is compared in mortgage protection or family protection.

What family income benefit costs

Family income benefit is generally seen as the most affordable form of life insurance available¹. The reason is the decreasing liability described above: because the insurer's worst-case payout shrinks every year the policyholder survives, the risk is cheaper to cover than a level lump sum over the same term.

Quoted premiums give a sense of the scale. Which? lists LV= premiums for family income benefit, for non-smokers over a 20-year term, of £9.75 a month for a 30-year-old with £24,000 of cover a year, £10.31 a month for a 40-year-old with £12,000 of cover a year, £21.34 a month for a 50-year-old with £12,000 of cover a year, and £41.09 a month for a 50-year-old with £24,000 of cover a year¹.

Two patterns stand out. Age roughly doubles the cost between 40 and 50 at the same cover level, and doubling the cover roughly doubles the premium at the same age. These are quoted figures for one insurer from August 2026, not market averages, and premiums vary with health, smoking status and occupation. How insurers price risk generally is explained in how life insurance premiums are worked out.

Premiums themselves come in two forms. Guaranteed premiums are fixed for the whole term, so the monthly cost never changes. Reviewable premiums may cost less initially, but the insurer reviews them on a regular basis and may change them, which means the affordable quote at the outset is not guaranteed to stay affordable¹. The trade-off is compared in guaranteed or reviewable life insurance premiums.

Choosing the term and the amount of cover

Because the income stops on a fixed date, the term has to be matched to a real need. The usual anchors are the years until children are expected to be financially independent, or the years until a mortgage or other debt is cleared. A policy that ends when the children leave home has done its job even if it never pays out; a policy that ends five years too soon leaves a gap nothing else fills.

The amount of cover is usually worked out from the monthly income the family would lose. A rough method is to take the deceased's take-home contribution to household bills and childcare and choose a cover amount that replaces it. Unlike a lump sum, there is no need to work out an investment return or a drawdown rate: the policy simply pays the chosen figure each month, which makes the arithmetic easier and the outcome more predictable.

Joint policies add a decision. Family income benefit is available on both an individual and joint basis, with a joint policy paying one set of income payments, usually after the first policyholder dies during the term¹. Two single policies cost more but can pay out on both deaths; a joint policy is cheaper but pays only once. Family income cover is a type of term life insurance which pays out a monthly salary upon one recipient dying³, so a joint policy ends its cover once that single event has happened.

Level or inflation-linked income

A level income has an obvious weakness: the same monthly amount buys less as prices rise over the years. You have an option to increase the value of your family income benefit with inflation, to ensure the value of the monthly payment holds up over the term. The trade-off is that this is likely to increase premiums at the outset¹.

The same trade-off appears elsewhere in financial products. An inflation-linked annuity will rise each year in line with the retail price index, but it will start at a much lower rate than a level one⁸. The buyer of indexation everywhere pays for it by accepting less at the beginning in exchange for more later. Whether that is worth it depends on how long the payments are expected to run: a claim early in a long term means many years of inflation to absorb, while a claim late in the term means indexation bought little.

The scale of inflation in recent years shows why the option exists. Inflation-linked cash benefits, including Universal Credit standard allowances, the State Pension and disability benefits, were uprated by 10.1% in line with the Consumer Prices Index for the financial year ending 2024⁹, and the same CPI-linked rise of 6.7% applied to inflation-linked benefits in Northern Ireland at April 2024¹⁰. A level income that had been set a decade earlier would have lost a large share of its purchasing power over that period. How indexation works on protection policies generally is covered in what is indexation on life insurance and level or increasing cover.

No payout if you die after the term ends

Family income benefit is term insurance, and term insurance has a hard edge. If you do not die during the term, the policy does not pay out the death benefit and the premiums you have paid are not returned². There is no cash-in value and no maturity payment: once the end date passes, the cover simply ceases.

This is the same for all term life insurance, and it is the reason term cover is so much cheaper than whole of life cover, which is guaranteed to pay out whenever death occurs. The comparison is set out in term or whole of life insurance. The money spent on premiums has bought a period of protection, not an asset.

One exception can pay out before death. Some life insurance policies include terminal illness benefit: if you are expected to live for less than 12 months, the insurer will pay out the full amount of the insurance cover straight away, and you keep the money even if you live longer¹¹. On a family income benefit policy this accelerates the cover rather than changing it, and it applies only during the term. More detail is in does life insurance pay out for terminal illness.

Swapping the income for a lump sum

A frequent question is whether the family can ask for the whole payout in one go, perhaps to clear the mortgage or invest it. The answer is no: it is a monthly payment until the end of the term¹. The income cannot be commuted into a single sum at claim time, and the policy is not designed to produce one.

This is the practical dividing line between family income benefit and level term life insurance. A level term policy pays one amount, whenever the death falls in the term, and the family decides what to do with it. A family income benefit policy pays on a schedule, and the total is whatever the schedule produces. Neither is better in the abstract: the lump sum suits a one-off need such as clearing a debt, while the income suits a household that needs to replace a salary month after month and prefers not to manage a large capital sum.

Families who want both behaviours sometimes split their cover, taking a smaller lump-sum policy for immediate costs alongside a family income benefit policy for the running costs of daily life. Whether that split makes sense depends on the size of the need at each point, and the options are compared in mortgage protection or family protection.

How family income benefit is sold alongside other cover

Family income benefit rarely sits alone in a household's protection. Critical illness cover can be added to a life insurance policy or bought separately, providing a lump sum on diagnosis of a specified serious illness¹. Where cover is bundled together with a life insurance policy, be aware that if you receive a payout for the critical illness, the amount that could be paid out if you later die within the term will be reduced¹². That interaction matters when the life cover is a family income benefit policy, because the monthly income the family would eventually receive is reduced by the earlier claim.

Income protection is the other common companion. It is not a type of life insurance¹³; it replaces part of your income if you cannot work due to illness or injury, typically paying a regular income rather than a lump sum, usually covering around 50% to 70% of your salary⁵. Policies typically pay a percentage of your salary and continue until you return to work, retire or the policy ends¹⁴, while cheaper short-term policies may only pay for one or two years¹⁴. Choosing a policy that pays out for a set period, such as one or two years, can be cheaper than cover that runs until retirement⁵. A household with family income benefit, critical illness cover and income protection has death, serious illness and inability to work each covered, but the overlaps and gaps need checking.

Death in service benefit from an employer can also change the calculation, since it may provide lump-sum cover that reduces the need for a separate policy. The comparison is in death in service benefit or your own life insurance, and the process of buying any of this cover is in buying protection insurance.

Tax on family income benefit payments

The tax position is favourable. Family income benefit is not taxable: the payments your family receives are not treated as income for tax purposes¹. More generally, life insurance payouts are not subject to income tax or capital gains tax¹⁵.

Inheritance tax is a separate question, because a payout that is not income tax can still form part of the estate. All life insurance policies can be written in trust, including family income benefit. This is a legal arrangement that keeps the payout outside the estate, avoiding probate, and it is free of charge¹. Writing the policy in trust also means the money reaches the beneficiaries directly rather than waiting for the estate to be administered, which can matter when a household is living on the income. The mechanics and the decisions involved are in writing life insurance in trust, should I write my family income benefit policy in trust and is a life insurance payout subject to inheritance tax.

Claiming and where to get help

A claim on family income benefit is made by the family, usually the beneficiaries named in the policy or in the trust, after the policyholder's death. The insurer will need proof of death and the policy documents, and the first monthly payment begins once the claim is accepted, running to the end date. What documents are needed and how long a claim takes are covered in what documents are needed for a life insurance payout and how long does a life insurance claim take, and the process overall is in claiming on a life insurance policy after someone dies.

If a claim is disputed or an insurer refuses to pay, the complaint goes first to the insurer and then to the Financial Ombudsman Service, which is free. Where the refusal turns on whether medical questions were answered honestly, the rules on non-disclosure are in answering an insurer's questions honestly. If premiums have been missed and the cover has lapsed, the position is in missed premiums, lapsed cover and reinstating a policy.

For free, impartial help with working out what cover a family needs, MoneyHelper, the government-backed money guidance service, is available, as is the protection insurance guide on this site, which sets out every type of cover side by side.